ROILO GOLEZ, Philippine National Security Adviser (2001-2004). The world and the Philippines as Roilo Golez sees it. With focus on national security, geopolitics, geo-security, economics, science and government.

Monday, May 22, 2017

To sustain their economic growth, the members of the Association of Southeast Asian Nations must build infrastructure to bridge their divides -- a need that fits neatly with China's ambitions in the region through the Belt and Road Initiative.. Stratfor

Southeast Asia: A Notch in China's Belt and Road Initiative

(Chanchai Duangdoosan/Shutterstock)

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Editor's Note

This is the final installment in a four-part series exploring the underlying motivations behind China's ambitious Belt and Road Initiative and the challenges that it will face.

Southeast Asia is the pivot of China's sprawling 65-nation Belt and Road Initiative. The region's growing markets, numerous manufacturing hubs and abundant natural resources offer Beijing a wealth of economic opportunities. But its greater value to China is rooted in geopolitics. As the country's economy has exploded in recent decades, it has come to rely on external trade routes. Today, one of Beijing's top priorities is protecting these routes from foreign interdiction, especially in the South China Sea and Strait of Malacca. The chief goal behind China's Belt and Road Initiative is twofold: To establish secure sea routes from its coast to the Mediterranean Sea and to create alternative supply routes overland to ensure its continued access to foreign markets in the event of a maritime cutoff. Southeast Asia serves both of these ends.

China's success in achieving its objectives in Southeast Asia, however, will depend in large part on the internal dynamics there. Southeast Asia is a geographically, ethnically and culturally diverse region whose constituent countries vary widely in their levels of development. And though most Southeast Asian states see the Belt and Road as an opportunity to fill critical gaps in their infrastructure, many are wary of becoming overly dependent on or indebted to their northern neighbor. As China expands its influence over the region, moreover, the Association of Southeast Asian Nations (ASEAN) has found it increasingly difficult to maintain a balance in its relations with China and the West while keeping a unified front to counter Beijing. These concerns could hold up the Belt and Road's progress in Southeast Asia.

Nuts and Bolts

The initiative capitalizes on the geography common to East and Southeast Asia. The proposed China-Indochina Peninsula Corridor, one of six economic corridors envisioned in the program, will take advantage of China's 3,889-kilometer (2,416-mile) border with Myanmar, Laos and Vietnam, running overland through Malaysia to Singapore. The Bangladesh-China-India-Myanmar Economic Corridor, meanwhile, will run westward to connect China with South Asia, although its full realization depends on whether India signs off on the deal. Several Southeast Asian countries also share the contentious waters of the South China Sea. The Belt and Road Initiative's Maritime Silk Road will stretch from coastal China through the South China Sea and Strait of Malacca, then across the Indian Ocean to the waters of the Mediterranean Sea. Of course, the precise details of these economic corridors are subject to change depending on the region's political, economic and security constraints.

The goal of the land-based routes is to increase China's links to the sea by way of the Southeast Asian peninsula. The improved connectivity will not only facilitate the flow of goods between China and the Southeast Asian interior, but it will also eventually afford Beijing new outlets to the sea to reduce its dependence on disputed waterways. These priorities dovetail with those of ASEAN. The bloc is focused on boosting economic integration in the region, particularly under the rubric of the ASEAN Economic Community.

Bridging the Divides

To do so, though, Southeast Asia needs infrastructure to bridge its divides. Along with the physical distance between ASEAN's members on the peninsula and the outlying archipelagos of Indonesia, wide gaps in economic development separate the mainland countries themselves. Cambodia, Laos, Myanmar and Vietnam are far behind their neighbors in economic development, having spent much of the 20th century consumed by conflict. Their combined gross domestic product accounts for only 11.7 percent of ASEAN's total GDP today; Vietnam alone accounts for 8 percent. Furthermore, stark linguistic differences divide the countries of the mainland as well. Overcoming these barriers will be a costly undertaking: The Asian Development Bank estimates that Southeast Asia will need to spend $2.76 trillion on infrastructure through 2030 to sustain economic growth. Given the region's massive funding requirements, and the estimated $92 billion annual shortfall in its spending, China's offer of investment and loans could be a considerable boon for Southeast Asia.

But each of the northern mainland countries has its own priorities. Cambodia, for instance, needs to build out its electricity capacity and transportation networks to support its nascent manufacturing industry. The area's economic outlier, Thailand, on the other hand, wants to develop its eastern seaboard and tap into the low-wage workforces in neighboring countries as it moves up the value chain. After decades of conflict and neglect, Myanmar needs to rehabilitate or expand its infrastructure and better incorporate its restive border regions, some of which abut China. Vietnam wants to establish a more robust connection between its northern and southern regions while striking new trade routes westward. And Laos hopes to make the most of its position in the middle of the peninsula.

Results May Vary

Considering the disparate goals of its potential partners, Beijing has so far pursued bilateral deals with the Southeast Asian nations individually to realize its ambitions for overland connectivity. This approach has met with varying levels of success, but China has achieved its greatest victory in Laos. The two countries struck a deal to run a railway through Laos, enabling China to make headway on extending the line to ports and industrial zones on the Gulf of Thailand. Eventually, the route may even reach into Malaysia. By leveraging its considerable size advantage over tiny Laos, China managed to quickly move the project into construction in December 2016. It also secured terms for the deal that were favorable from its perspective, but worrisome for Laos. Though a small population and scant industrial activity give the landlocked nation little use for a high-speed rail, it has nonetheless agreed to spend $6 billion — just under half of its annual GDP — on the project, mostly funded through loans.

Elsewhere in Southeast Asia, however, China has struggled to make similar deals. Its visions for parallel rail lines through Myanmar or Vietnam failed to materialize because both countries have options for foreign support beyond China and a need to keep Beijing's influence in check. Likewise, Thailand has dragged out negotiations over the Laos line's extension to try to obtain better terms for the project, which in its original conception would have bypassed most of the country's population centers. Bangkok's ability to shape the deal reflects its greater leverage with China, relative to Laos. Thailand, whose GDP is more than 30 times greater than that of Laos, has an industrialized economy and a diversified trade portfolio to boot. In addition, it boasts a growing consumer market, developed supply chains and easy access to Myanmar, Malaysia and Singapore — all selling points for China. Connecting to the rail line from Yunnan would advance the country's aims to expand its industrial zones and ports on its eastern seaboard. But its participation in the project, at least in its current form, is more valuable to Beijing than it is to Bangkok, particularly since Thailand has other partners, such as Japan, with which it can work to improve rail connectivity.

China also faces stiff competition in Malaysia and Singapore. If Chinese companies manage to beat out the Japanese, South Korean and European firms bidding to build a high-speed railway between the two, the deal would mark the first truly multilateral Belt and Road venture in Southeast Asia.

On the High Seas

The rail corridors are only part of the story, though. Beijing's main interest lies in the sea. China is trying to forge maritime links southward and establish more secure connections through the critical waterways of the South China Sea and Strait of Malacca. Because of the work entailed in the scheme, which includes ambitious port projects, and the countries involved — Indonesia, Malaysia, Singapore and the Philippines — it could take more time and cajoling to pull off.

As with China's overland ventures, each of its prospective partners in the Belt and Road's maritime endeavors has its own priorities to consider. Singapore seeks tighter connectivity with mainland Southeast Asia, and Malaysia is trying to build out its coastal ports to enhance its role in the region. The Philippines, meanwhile, is after projects that will better incorporate the thousands of islands in its sprawling archipelago. And Indonesia, too, wants greater connectivity among its islands, especially with its core of Java, and infrastructure to leverage its crucial position on the Malacca Strait.

In Indonesia, Beijing has strived to accommodate Jakarta's domestic priorities with its Belt and Road projects. China, for example, outmaneuvered Japanese firms in 2015 to strike a deal on a railway to connect Jakarta to Bandung, the capital of West Java province. The venture, into which Beijing would pour $6 billion, supports its overarching plan to invest in Indonesia's Tanjung Sauh Port on the island of Batam at the Malacca Strait's eastern entrance. China has similar designs on ports in Malaysia, where it's working on the $1.9 billion Melaka Gateway port along the strait's northern shore and the Kuantan port on the South China Sea, and in the Philippines, Thailand, Myanmar and Cambodia. These efforts are at different stages of planning, development and construction. It's unclear, moreover, which of them officially falls under the Belt and Road Initiative's umbrella.

Still, each of the projects fits into Beijing's Maritime Silk Road strategy. China hopes to use its involvement in these ports to shape the contentious maritime sphere in its interests. Already, Beijing has managed to persuade the Philippines to cooperate, despite rising regional tensions in the South China Sea, by offering Manila mutually beneficial development projects. Since its economy and security alike rely on the South China Sea, China wants to become indispensable to the other maritime powers there, rather than being just another claimant. Doing so is essential to protect its economy in the event of a conflict in the contested waters; diversified land routes won't cut it on their own.

The Bigger Picture

And Beijing's economic security isn't the only factor driving increased connectivity, either. Trade between China and ASEAN members has surged over the past decade; the bloc's imports from China have tripled to nearly $260 billion, while its exports to the country have more than doubled, reaching $89.5 billion. The rising trade volumes inspired both sides to work to deepen their infrastructure ties with the other.

At the same time, however, they have also caused concern for some ASEAN members. Of the five countries with largest economies in the bloc, Vietnam, Thailand and Indonesia have a trade deficit with China. The persistent discrepancy has colored Vietnam's view of the Belt and Road Initiative, all the more so considering its proximity to China and the maritime disputes the two have yet to resolve. Other countries in the region are equally leery of their northern neighbor's growing clout. Notwithstanding the opportunities China has to offer, the Southeast Asian nations don't want it to gain unchallenged primacy in the region. Beijing, after all, has kept ASEAN from coalescing against it through its deft use of economic incentives, even with the states most concerned about China's maritime assertiveness, such as the Philippines.

Their apprehension could keep some of the bloc's members from getting more involved in the Belt and Road, especially since Southeast Asia has plenty of economic options beyond China. Combined, ASEAN's members have a population of 637 million and a GDP or $2.6 trillion. The bloc is projected to have the world's fourth-largest economy by 2050. In the meantime, it has had no dearth of interest from international investors, including regional countries with developed economies such as Japan, Australia and South Korea. Even the European Union and the United States invest substantially more in ASEAN than does China. And on top of that, investment within the bloc is rising as its member states grow. By contrast, the areas where China has made the most progress with its Belt and Road projects, such as South Asia and Eastern Europe, struggled to find funding before Beijing began courting them.

Given the Belt and Road Initiative's importance to the Chinese government -- and the fact that many of its goals align with those of ASEAN -- China will continue making strides in Southeast Asia. But Beijing's partners in the region will have just as much say over the progress and direction of its numerous projects there as it does.